Is HITECH Working? #4: While most attention has been focused on demand side incentives (will doctors and hospitals buy EHRs?), the supply (vendor) side of HIT is already transforming.

Most of the press coverage and attention to HITECH has been to the “buy” side of the market: The central question here has been: “Will doctors and hospitals buy and use EHR technology?”

Meanwhile — and much more quietly — the sell (vendor) side of the EHR market is already dramatically different than it was a year ago. We observe change occurring at at least three levels:

HITECH as Policy Change

HITECH as Mindset Change

HITECH as Technology/Business Model Change

1) HITECH as Policy Change

The HITECH legislation came in under the label “Stimulus”, but make no mistake that it’s far more than that. It’s major policy change which President Obama referred to as a “downpayment” on broader health care reform legislation. (In post #6 of this series, we’ll go a bit deeper into synnergies between HITECH and health reform legislation.)

The only people in the market who are fighting connectivity are Epic, and their strategy is to say, “Sure, you’re connected as long as everybody’s on one system and it’s the same version.” …Epic is not only against connectivity, but they’re anti-innovation. From that standpoint, they’re kind of exactly the opposite of the connectivity model that the rest of the industry is working toward. Allscript-Misys, Glenn Tullman, CEO

Almost all health IT vendors are going along with the changes required by HITECH. We sense little resistance and even we are surprised how vendors have shifted their mindsets along with major aspects of their technology and business models.

a) Yesterday: Monolithic EMRs. We’ve previously described the EHR technology industry as migrating from a monolithic, non-modular EMR 1.0 structure to a platform/application structure (see slides 11–17 of this PowerPoint presentation for a recap and visual depiction).

While monolithic EMRs are still a predominant offering in today’s market, its clearly yesterday’s technology.

b) Today: Walled Gardens for Proprietary EHR Technology Platforms. The term “walled garden” refers to business models that have been prevalent in the media and telecommunications industry. A walled garden controls users’ access to content and services; it restricts the user’s navigation within particular areas (applications). Walled garden business models are not all alike — there are differing heights and levels of permeability to the walls.

How “open” is a walled garden business model? It’s generally far more open than a monolith, but far less “open” than a platform COULD be. (The term “open” has many dimensions and its meaning is not generally agreed upon in the technology community; we’ll save a broader discussion of openness in health care for another day.)

The iPhone is one example of a highly successful walled garden business model. Apple has opened up its application programming interface (API) to outside developers, yet it maintains tight control over it’s proprietary platform through factors such as:

Integrated hardware/software platform. The iPhone hardware and software are bundled together — you can’t buy the phone or the software separately.

Non-swappable applications — iPhone apps must be programmed for the iPhone platform.

Exclusive distribution. You can only buy apps through Apple’s store.

Restriction on carrier choice — if you want an iPhone you have to get AT&T.

Restrictions and controls on developers

Over 140,000 applications have been developed for the iPhone platform. The iPhone is praised for its tightly integrated user experience.

So — the iPhone is “open” in the sense that it allows outside developers to build apps, but it is closed in almost every other sense.

We see a similar pattern of walled garden proprietary EHR technology platforms emerging in health care TODAY:

Allmost all of these proprietary EHR technology platform models have been announced just within the past few months. There aren’t many details yet available, but one commonality is that similar to what Apple did with its iPhone, the vendors have opened up their APIs to outside developers.

We also note that these walled garden business models retain many aspects of the monolith business model — they are geared toward high pricing, high switching costs, and customer lock-in.

We believe the walled garden EHR technology platform model will be highly competitive in the near future. Similar to the iPhone, the need to tightly integrate the healthcare user experience is vital.

Our main points here are:

To note the sheer number of walled garden proprietary EHR platforms emerging

That we expect these to be more open and innovative than yesterday’s EMR 1.0 model

Should we expect to see even more open EHR platforms and business models emerge? Yes.

c) Tomorrow: Open EHR Technology Platforms with Plug-and-Play Modular Applications. Is the walled garden proprietary EHR platform the endpoint of evolution for EHR technology? We don’t think so….we see the probability of one or more open EHR technology platforms breaking through in the near future.

Why? To quote Willie Sutton, “…because that’s where the money is”.

As we’ve learned from platform/application business models in other industries, there’s a tension in value creation opportunities between platform vendors and application vendors:

Platform owners (e.g., Apple iPhone) want to capture the value by maintaining tight control over their platforms

Application vendors are incentivized to commoditize the platform so that value creation and value capture can migrate to the applications themselves

Let’s look at a non-healthcare example — Google Android. Android is an open, free software platform for mobile devices; it includes an operating system, middleware, and applications. Android is supported by the Open Handset Alliance, a group of more than 30 companies. The majority of the code is licensed under Apache2, allowing developers to add additional proprietary functionality without giving anything back to the platform.

Android is an open platform that is highly competitive to the Apple iPhone and highly disruptive to the walled garden business models of telecomm carriers (Sprint, Verizon, etc.) See the references below for more info on Android.

We believe one of more EHR technology platforms could emerge in the near future; the opportunities to create disruptive innovation and shift value capture are huge. There are many market proponents and market forces pushing to create plug-and-play modularity on an open EHR platform:

…we believe that it will be common in the near future for Certified EHR Technology to be assembled from several replaceable and swappable EHR
Modules. Health & Human Services, Interim Final Rule on Standards, December 2009 p.41

Google Health and Microsoft HealthVault. While both of these were fashioned as consumer-focused personal health information platforms, we see them as potentially becoming open EHR technology platforms.

10 thoughts on “Is HITECH Working? #4: While most attention has been focused on demand side incentives (will doctors and hospitals buy EHRs?), the supply (vendor) side of HIT is already transforming.”

Great, interesting series. The iPhone OS v. Android models is a great way to explain these markets. While I agree the hype and prep surrounding HITECH has been big, I think the proof will be in the pudding (as it were) when the first groups collect stimulus dollars. If that doesn’t happen on a relatively large scale, I think attitudes will change very quickly.

When you say “the walled garden EHR technology platform model will be highly competitive”, in what sense do you mean “competitive”? Do you mean the model (all vendors) will compete well against the monoliths, or that there will be strong competition among vendors within this model, e.g. Dell vs Verizon vs Quest?

If I were an app developer I’d shudder at the idea of a dozen platforms (gardens). Of course, I’m assuming that the purpose of allowing plugins is to achieve enhancement with risk: let others gamble on what features users will buy, thus growing your capability (and your ecosystem) without risking your own resources. Am I missing something?

I’m guessing that 98% of the app developers will want to put their eggs in the more open basket, hopping right over the garden, walls and all.

Thanks, Dave, for your good comment. I think, in answer to your first question, that the “walled garden” EHR technology platforms will be both competitive intra-and extra-murally. Today, quite a few companies believe they can be the Amazon or the Google or the Apple of this new space being created for platforms+modular apps+network service in health care IT. So, I think it very likely we’ll see quite a few entrants. And since they all believe that they’re competing with the monolithic and mostly client-server companies, they’ll strive to keep costs low and service high, which will make them attractive to consumers.

If I were a developer, I’d be developing in both .NET and Java, and looking for whose platform(s) seems likely to come out on top. Or, if the occasion arises, if there is an Android in the space, writing to that platform. But health care and EHR technology is quite complex, and I don’t see a Linux or Apache coming along any time soon.

Michelle, Yes — there are some great comparisons to make between the iPhone and Android ecosystems — and it’s still unfolding and there are many lessons to learn.

Dave, what I’m most optimistic about is that the migration away from monolithic EMR 1.0 will begin to offer CHOICES — to developers, patients, caregivers, and many others.

Your questions go to HOW those choices will unfold and play out, and that’s not easy to see…but yet its very exciting!

I expect the walled garden model to be competitive because one of the lessons we have learned from the iPhone is the ability to create a great user experience through tight control by the platform owner (Apple). Thus, there are both technical and business model issues driving strengths of the walled garden approach.

We need to be careful NOT to equate “walled garden” with “bad” and “open” with “good” — the more realistic view is that the market will figure out the optimal amount of openness, which likely will be some combination of open and closed technical and business model components. It’s probably more realistic to think of “monolith–walled garden–open” as a continuum rather than as discrete categories.

As to your point that developers will not want to develop for a dozen or more walled gardens — Yes, you’re absolutely right, and if there were a viable open EHR tech platform I agree that’s likely where developers would go.

It’s certainly possible that one or two of the walled garden EHR tech platform could become dominant and attract a disproportionate amount of developer talent (again ala Apple iPhone).

So I agree with David, we’re likely to see both intra walled garden competition and competition BETWEEN walled garden platforms collectively and one or more open EHR platforms.

How will all this come out in the wash? I have no clue, but that’s not the point.

The point is that we’re beginning to get choices and competition in a market that has been stagnant.

After studying this series last night and digging into just a few of the links you provided (you guys are somethin’ else), I was up all night thinking and writing, because the Gartner slide deck that you linked to in #3 (“Simple interop”) brought so much into clarity for me all at once.